Globe and Mail article draws from M&A Top Trends 2014

Corporate mergers to remain slow as uncertainty clouds economy

A new year inevitably inspires fresh speculation on what the year ahead in business will bring. In this spirit, a Globe and Mail article on emerging developments affecting M&A and the broader economy makes extensive reference of Torys’ M&A Top Trends 2014. Several of the trends discussed in our publication are cited, including innovations in closing valuation gaps and M&A closing timelines–and partner John Emanoilidis, co-head of our M&A Practice, was sought for further comment.

Below is an excerpt of the article.

What is to blame in the resources sector is the so-called “value gap,” as buyers are reluctant to pull the trigger on deals based on commodity prices that could sink suddenly, and sellers are unwilling to let their assets go at steep discounts.

Getting around this problem is one key focus of a report from Torys LLP on mergers-and-acquisitions trends for the next year.

It says the tough environment has been spurring “innovative deal practices,” such as a more widespread use of what are known as “contingent value rights” – or provisions that try to bridge the gap between what buyers are willing to pay and sellers are willing to accept.

John Emanoilidis of Torys LLP says the idea, commonly called “earnouts” in the acquisition of private companies, allows sellers to receive additional payments if the company hits certain performance benchmarks.

With public companies, shares in the new company can be handed over, but with arrangements called “collars,” which entitle shareholders to compensate them if the shares sink below a certain price.

“On transactions that we’ve been involved in, it has come up as a possible bridge,” Mr. Emanoilidis said, adding that they are common in pharmaceutical deals where the effectiveness of a promising drug is not yet known, but could be used in other sectors such as resources.

The M&A report from his firm also highlights other trends, including increasing shareholder activism.

And it punctures the idea that the federal Competition Bureau, seen to have more aggression in recent years, has been slowing down deals. According to the Torys report, the watchdog’s reviews have been taking less time on average, not more.